Soaring building costs sound sour note for New Zealand economy

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Newly qualified New Zealand carpenters are commanding six-figure salaries and construction costs have risen by half in under three years, symptoms of an unprecedented building boom straining the South Pacific nation’s much-envied economy.

Fuelled by the record number of migrants needing houses and by repairs to roads and buildings damaged by several major earthquakes, construction accounted for 13 per cent of the New Zealand economy in the March quarter. The nationwide build is forecast to hit NZ$37 billion (US$26.9 billion) this year.

But the sector is hitting headwinds that are frustrating companies and builders and making the central bank wary.

Mark Adamson, chief executive of the country’s largest construction firm, Fletcher Building, said the labour market was so tight, manual workers can now command top dollar to “hold a hammer”.

“I got a quote yesterday: NZ$65 an hour, you’d get a hundred grand for driving a forklift – there’s just not enough people to go around,” he said.

Fletcher Building shares have lost a quarter of their value so far this year after the labour shortage prompted a profit warning, shocking investors who saw the company as a proxy for the “rock star” New Zealand economy.

Industry-wide, costs for non-residential construction have grown about 50 per cent since 2015, according to project management firm Rider Levett Bucknall.

Meanwhile, unemployment is below 5 per cent and labourers’ wages are the fastest-rising of any occupation, adding 17.5 per cent since 2009, according to Statistics New Zealand.

Across Auckland, the engine room of the construction boom, builders said newly qualified carpenters were demanding NZ$50 or more an hour.

We don’t get the quality of workers that we used to and you’ve gotta pay more for it

Steve Grant, Auckland builder

That puts their annual salary at over NZ$100,000 – above the median annual pay of a bank manager, and more than double that of a schoolteacher, according to job classifieds website Trade Me.

“You can’t get good staff. That’s what it comes down to really,” said Steve Grant, an Auckland builder who employs four people. “We don’t get the quality of workers that we used to and you’ve gotta pay more for it.”

The builders’ challenges cut to the heart of the jitters in New Zealand’s economy, which has grown at an average of nearly 3 per cent a year since 2012 and was described by the Organisation for Economic Cooperation and Development as the envy of the developed world.

A wobble in construction activity put March-quarter growth behind expectations and raised questions over the massive building pipeline.

At the same time, the country’s biggest city is bursting at the seams. The local government estimates the city needs to add 14,000 new homes a year for three decades.

“Wherever you look in Auckland and the construction sector there is a capacity issue,” said Ron Angel, the construction industry coordinator for union E tu.

“Can we get enough concrete? Can we get enough roofing? Can we actually get a truck to get it to the job at 10am when I need it there?”

The problem caught the eye of the country’s central bankers, coming as record migration spurs soaring demand for housing.

“You’re certainly seeing bottlenecks appear there,” Reserve Bank of New Zealand governor Graeme Wheeler said at a recent press conference, adding that construction was an area the bank was “watching closely”.